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On Wednesday, BofA Securities adjusted its outlook on U.S. Physical Therapy (NYSE:USPH), a leading operator of outpatient physical therapy clinics in the United States. The firm's analyst has reduced the price target on the company to $114 from the previous $121 while maintaining a Buy rating on the stock.
This change comes after the company's adjusted EBITDA fell short of expectations, with a reported $1.5 million or 6% below the consensus and $2.6 million or 11% below the analyst's estimate, primarily due to significantly lower margins. Despite revenues being 2% higher, the company has revised its EBITDA guidance downward by $2.5 million or 3% compared to the prior forecast.
The downward revision in EBITDA guidance by U.S. Physical Therapy has been attributed to rising labor costs, including both clinical and front-office/administrative staff, in terms of salaries and contract labor. As a result of these increased costs and the subsequent reduction in EBITDA estimates, BofA Securities has recalibrated its price objective from $121 to $114.
This new target is based on a valuation of 15.1 times the projected 2025 EBITDAR, as opposed to the prior multiple of 16.4 times the projected 2024 EBITDAR, indicating a shift in the valuation methodology to the next fiscal year.
Despite the disappointing performance and the cut in guidance, BofA Securities reaffirms its Buy rating on U.S. Physical Therapy's shares. The firm's analyst remains optimistic about the company's potential for capital deployment, which could lead to an upside for the stock. The Buy rating suggests that the firm still sees long-term value in the company's shares despite the short-term challenges it faces.
U.S. Physical Therapy operates a large number of outpatient physical therapy clinics across the United States, and its financial performance is closely watched by investors and analysts alike. Adjustments in price targets and ratings by major securities firms can influence market perceptions and investment decisions regarding the stock.
In other recent news, U.S. Physical Therapy, Inc. reported total revenue from physical therapy operations saw an 8.5% year-on-year increase to $143.5 million, with patient visits and net rate per patient visit also witnessing growth. However, rising labor costs due to a challenging employment environment have impacted the company's profitability. CEO Chris Reading attributed these costs to higher salaries and increased use of contract therapists.
In other developments, the company has declared a quarterly dividend of $0.44 per share. These are some of the recent developments concerning U.S. Physical Therapy, Inc.
InvestingPro Insights
In light of the recent adjustments by BofA Securities, a closer examination of U.S. Physical Therapy (NYSE:USPH) through InvestingPro metrics and tips provides additional context for investors. Notably, USPH has demonstrated a commitment to shareholder returns, having raised its dividend for three consecutive years and maintained dividend payments for 14 consecutive years, signaling a strong track record of returning value to shareholders. This is particularly relevant considering the company's reported dividend yield of 1.96% as of the latest data.
Furthermore, the company's financial health appears robust, with liquid assets surpassing short-term obligations and a moderate level of debt, which bodes well for its ability to navigate the current challenges of rising labor costs. Despite the market's reaction to the revised EBITDA guidance, USPH's net income is expected to grow this year, and analysts predict the company will be profitable, as evidenced by a positive net income over the last twelve months.
Investors should note, however, that USPH is trading at a high earnings multiple, with a P/E ratio of 74.96, which is above the industry average, indicating a premium valuation. This is corroborated by a high EBITDA valuation multiple, which may warrant caution for value-focused investors. For those seeking additional insights and analysis, InvestingPro offers several more tips on U.S. Physical Therapy, which can be found at https://www.investing.com/pro/USPH.
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